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Waiving Inspections? You Better Have a Good Reason

Certified Mortgage Advisor
NMLS 1701021
July 8, 2021

You better not be thinking about waiving inspections

I keep hearing people talk about the idea of waiving inspections when they're looking at buying a house and it's insane. And I came across this Reddit post where this person was talking through their experiences. I wanted to share this story with you really quickly.

So you could see how insane the idea is to waive inspections. And then I want you to be able to see if this is something that you like, are you considering, and maybe you want to reconsider if that's something that you're looking at doing. So you can read through the Reddit post.

Saving $30k

But through this thing projected $30,000 and almost immediate costs. So they talked about, they put in their seventh offer on home, which obviously like this market is tough to navigate through it. And so they were saying, Hey, we put in our seventh offer on our least favorite house. And then it was finally accepted. I thought it was funny that they even mentioned like we put it in and this is like our least favorite home. And this was just the one that worked.

Offered 5% over listing with an as is inspection contingency

But they were still willing to open and expose themselves to these potentially damaging things in a home that they really didn't even all that much. And so they offered 5% over listing with an as-is inspection contingency. So basically what that means, most of the time is the seller will allow you to actually have an inspection, but not request repairs. So you can have it for your own usage, but then not actually have a contingency on it.

Why did they backed out?

And so what they did in here is they do the inspection and they did end up backing out of the contract. I'm not sure of the legality of how they exited that contract. And we'll talk about that here in a little bit, but the inspection repairs that came back. We're a septic system that needed a repair, AC was on the verge of failure. Windows, need to replace a lot of them are damaged. Concerns about the main water service line, visible mold in the attic is three times the EPA limit of radon.

So all of this in here was estimated at about $30,000. Again, of almost immediate repairs for health and safety, to be able to live in this home. Now likely a lot of these things probably would've got called out on an appraisal as well, depending on how strict that appraisal was and if they were going, depending on the loan type that they were using.

$1,700: Is worth it?

But that $1,700 in inspection costs have this done because they need some individual inspections for some of these things, saving them $30,000 in the long run. And I think that's really important to consider because when you're going into looking at buying a home and you're saying, yeah, we'll just waive the inspection. That's not a big deal. It's no, it's a huge deal. There's there can be a lot of expenses on the other side that you might not be able to catch. And at the same time kind of questioning are you prepared to be able to spend, $1,700 in inspections upfront before you purchase a home to make sure that it's a good financial decision for you and your family?

Cause I would much rather spend $1,700. Then not, and spend 30 on these extra costs as they come up and need repair when I move in, and then all of a sudden they're causing issues for me and my family, especially with things like mold, not to mention those are like long-term health costs that if those aren't being addressed now are going to come up as like medical bills in the future because that's going to be damaging to your body.

Competition for what cost?

I know the increasing competition is happening. It's causing people to do whatever they can to get ahead. But at what cost, like you might be able to say, yeah, we'll waive the inspection just to get the home, but are you getting so caught up in this frenzy of bidding on homes and doing everything you can to wear house that you know, you're not actually considering what could happen on the backend.

Is it a good decision to waive inspection?

Because really, I don't think it is unless you're really prepared and you understand everything that could go wrong in you're prepared to be able to remedy that if you do purchase the home and there are all these extra costs here at the end. So you might get the house, but can you afford to keep it is the big question.

There are ongoing maintenance costs with purchasing a home and an inspection really is going to help you be a good layer of protection for you of knowing what some of those costs could be in the future. So you can avoid them if you're not prepared to make that kind of financial investment into a home if it has some issues.

How inspection contingencies work

So here's how inspection contingencies work. If you're not familiar with it. An inspection contingency is a portion of the contract. So when you submit an offer on a home, you submit this contract. A portion of that likely will have an inspection contingency and contracts are always negotiated. So this can be different in your area or your state. And this is all things that you can negotiate with the seller. When you talk with your agent about this.

Allows you to inspect the home

So what it does is allows you to inspect the home before buying it to spot any expensive repairs needed. It helps you be able to say yeah, we had to pay some money upfront for the inspector, but we identified X amount of repairs needed that we need to be fixed before we're willing to move in.

And so for a lot of people, this can kill a deal. They see a house that they really like, but, oh, it had this roof issue and burden. We don't have the cash to be able to handle it. That issue in the near future, and so we won't be able to move.

Allows to get EMD back and exit the contract legally

So usually what it does is allows the opportunity to get earnest money back and exit a contract legally. Again, in the Reddit story, I don't know all the details of that. You're welcome to read through the Reddit posts' comments and everything to explore how they exited that contract legally because they had an as-is inspection contingency.

Contracts are negotiated

But for a lot of contracts, this isn't negotiated. Contracts are negotiated. They're not just static things. You can't just say this is what happens in my city, in my state. Contracts are negotiated, they might have a template, but you can negotiate all of those items in there if they're not what you want. And so for a lot of contracts and what's most ideal is being able to have inspection contingencies that say we have a certain period of time to be able to inspect the property and see what repairs are needed. And then if we want to exit the contract because the repairs are too much for us, or we can't reach a negotiation on credits for the contract. Then we can do so legally and receive our earnest money back.

Now I've also seen some contracts that say the seller can keep the earnest money if you back out because of inspections. I don't think that's in your favor personally. And again, this is all negotiated. So there are four steps here.

Inspection is completed within a time set on the contract

Again, this is all negotiated. So it might say that you as the buyer have seven days, 14 days, whatever, to be able to inspect and then request repairs as needed that are up to your standard.

Review the inspection

Then what happens is an inspector comes out and then you would review the inspection. And so you're going to get an inspection report back. Usually, an inspection report is going to tell you I feel like a good inspection report. Usually almost seems like the sky is falling. When you first look at it, it should be comprehensive and cover a lot of details about the house.

And there are going to be a lot of minor things in there that really aren't too concerning, but there are also some major things that you might need to consider in there as well. I worked with a buyer once who requested like it was somewhere around 20 to 30 items from an inspection report and they were all little things that actually didn't matter. It was things like trim around doors and things like that. Those things don't matter. Things that we can go to. Home Depot and their small-dollar fixes are worth fighting over on a contract in my opinion.

Look for expensive things that needs repair

What you're looking for when you're reviewing this inspection is what are these things that are going to cost us several thousand dollars or are these big things that we really need to be mindful of that when we purchase it?

Those are going to be the costs that we now take on. Are we ready to take those on that? What you're looking for? These bigger ticket items are in here.

Re-negotiate if needed

Step three is then renegotiating if needed in accordance with your contracts. So if your contract allows that great. That's what I think you should go with. But being able to renegotiate, and can happen in several ways. So I've seen sometimes where it's Hey, there's we found this repair needed. It's gonna cost $3,000. We're requesting a $3,000 credit. So maybe that's as a seller concession, or maybe that's a reduction of the purchase price.

The seller can do the repair work

Then sometimes what happens is the seller will actually just do the repair work. Maybe they hire someone else to do that, and they provide you with an invoice. So there are several. That this can be negotiated here. If you ask the seller to take it on that work and repair things as needed or give a credit or a discount on the purchase price.

Final walkthrough and /or invoice verification

Then to verify that you're doing a final walkthrough normally before closing to verify that work was done and, or getting an invoice for the work that was done as well, to make sure that these things all happen before you actually signed to purchase the home. Cause if you say, Hey we require these repairs needed. You want to have some way to validate the work that was done before you actually end up purchasing the home.

Good inspection will highlight the bad

Should you waive inspections? A good inspection is going to highlight the bad, but again, it's not always a reason for alarm. A good inspection is going to be thorough, and so when you look at it, it's, the inspection report is going to come back and be like, this is such a nice house and it's so cozy. It's going to tell you things that are wrong.

So understand that you're going to see things that are wrong with the home new homes have problems. And a lot of times they're just these little things that are okay. They're just fun little projects. Add them to a weekend. Don't fight over these small things. Don't nickel and dime a seller. I don't think that's the best way to move forward with the contract. What you're really looking for, again, are these things that are gonna cost, a thousand plus dollars, maybe your budget is a little bit bigger. Maybe it's a $5,000 plus item that you're looking for.

Does your market "require"?

Also, keep in mind, does your market require it? And I put that in quotes because I hear a lot of people say this yeah, my market requires us or contracts already have they don't have an inspection. Contingency or anything like that. If you're in a competitive market, you might feel like your market requires you to waive an inspection contingency.

I'm telling you it doesn't require you to all right. That might be the perception that might be what other people are doing, but it doesn't mean that you have to do that as well. Okay. So just keep that in mind, just because of what other people are doing. Doesn't mean you have to do it as well. Just because their market's a certain way does not mean that you have to make a bad decision just because other people are doing that same thing.

Do you have the cash for repair?

Also, considering, do you have the cash? One to be able to do the inspections as thoroughly as you need to, but then also, do you have the cash to make certain repairs in the future? If you're already really tight on down payment and closing costs, are you prepared to move forward on a home that is going to require a significant amount of repairs in the future?

What to waive?

So in my opinion, at most, I would suggest if you need any sort of like leverage, maybe waive the repair requests, but not the inspection itself. So I would never suggest not having an inspection. I think you always need to have an inspection on your home. If you're going to purchase something, that's several hundred thousand dollars that you're going to take the obligation and responsibility for, especially on a 30-year mortgage, why would you not have an inspection done on that?

Waive the contingency but not the inspection

I think you still need a contingency, but at most, okay. Maybe waive that contingency, and waive the repair requests, but you still need to have an inspection, to understand what's going on there. I really do think you need to have a contingency on the repair requests as well, where you can renegotiate it as needed or exit the contract and get your earnest money back. If you do find things that you know we're going to be too expensive for you.

Also, what I see a lot of people do as well is they'll put in their contract. They have the opportunity to request repairs above a certain price. So for instance, they'll request repairs above $5,000. Anything less than that as an individual item, you as the buyer would be responsible for it. And so this is your way of telling the seller like, Hey, we're not going to nickel and dime you for all these little things. That can add a little bit of leverage to the contract. We're only going to request things that we think are really big. And so if the seller knows that, Hey, there's not these issues with the home, then that might give them a little bit more comfort of having that inspection contingency in there as well.

Email me → kyle@winthehouseyoulove.com
Kyle Andrew Seagraves is Federal Mortgage Loan Originator (NMLS 1701021) licensed in all 50 states with the Dan Frio Team at Allied First Bank (NMLS 203463), an Equal Housing Lender. Separately, Kyle owns Win The House You Love LLC, an education company. Win The House You Love LLC is not a lender, does not issue loan qualifications, and does not extend credit of any kind. This website is only for educational usage. All calculations should be verified independently. This website is not an offer to lend and should not directly be used to make decisions on home offers, purchasing decisions, nor loan selections. Not guaranteed to provide accurate results, imply lending terms, qualification amounts, nor real estate advice. Seek counsel from a licensed real estate agent, loan originator, financial planner, accountant, and/or attorney for real estate, legal, and/or financial advice.

Allied First Bank is not affiliated with the VA, FHA or any other government agency. This site has not been approved by any government agency.
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